Choosing the Fed Chairman

Posted Nov 3, 2017 by Martin Armstrong

Many expect Mr. Jerome H. Powell to be President Trump pick for Fed Chairman. Trump is resisting pressure by conservatives to make a larger change at the Fed. Many conservatives, including Vice President Mike Pence, preferred John B. Taylor, who is an economist at Stanford and an outspoken critic of the Fed’s monetary policy. Taylor previously served in the Treasury Department during the Bush administration. However, he is best known as an academic economist with no real experience hands-on. He wrote an approach to monetary policy, known as the “Taylor Rule,” where he suggested that the Fed should be raising rates more quickly. That was obviously based on the economic theory of the Quantity of Money leads to inflation. He also has closely advised House Republicans on legislation that would require the Fed to adopt such a policy rule taking a hawkish approach to monetary policy.

Representative Warren Davidson, a Republican on the House Financial Services Committee’s monetary policy panel, is one of the people who want a change in policy toward more conservative and austerity. He is circulating a letter opposing Yellen’s reappointment. Personally, I believe Yellen has done a good job. She has been under international pressure not to raise rates from the IMF and just about everyone else because Europe is still floundering and higher rates would be expected to push the ECB and emerging markets off into the deep-end of the pool.

Mr. Powell, on the other hand, has consistently supported the Fed’s campaign to stimulate economic growth. However, Powell expressed some reservations in internal debates about the extent of those efforts. In more recent years, Powell has backed the methodical unwinding of those efforts, and analysts expect he will seek to raise interest rates at about the same pace as Ms. Yellen.